Posted on Feb 24, 2012 by Sandy Finlayson |
Finance for Business
In a recent article, I drew the distinction between internal and external finance. Having exhausted all internal sources of finance, the Company must then look for external sources, recognising that there is almost always a cost attached.
External finance takes three principal forms, namely:-
Grant Assistance takes many different forms with many different strings attached and the first question to ask is whether you can afford the cost of “free” money. It may takes weeks or months of endeavour and a substantial investment in professional fees to research the different forms of grant assistance which are available for businesses and to identify the particular types which may be applicable to your business.
As grant assistance is provided by publicly accountable bodies, it is not “free” but usually comes with strings attached relating to the number of jobs to be created, capital investment, technology development, geographical location or a combination of all of these and the grant conditions generally apply for a period of years after the date of the award (typically five years) with clawback provisions.
Proof of concept grants, SMART awards, RSE Fellowships, Framework 7 grants, Technology Strategy Board grants, Regional Selective Assistance and the numerous other types of grant assistance available can be absolutely invaluable to struggling young companies. However, it is essential to balance the prospect of “free money” with the time taken to obtain the grant, the amount of professional fees incurred in obtaining the grant and the opportunity cost associated with the delay and uncertainty.
Many small companies become “subsidy junkies”. While appropriate forms of grant assistance may be an integral part of the early stage funding ladder, every company which wishes to enter a real growth trajectory should aspire to leave subsidised funding mechanisms behind, recognising that its long-term success and sustainability is ultimately dependent upon its ability to generate cash from operations without public sector subsidy.
The next two articles will explore the many different forms of debt and equity financing. Should you have any queries about the options for financing your business, please do get in touch.